Foreign Remittance Limit: What Indian Businesses Should Know

If you’ve ever tried sending money abroad from India, you’ve probably faced a common challenge. While the payment goes through smoothly one day, the bank flags it on the other. Then, it asks for forms, or reminds you about a limit you never knew existed.

That’s the challenge many people face with foreign remittance limit. This confusion can slow down your payments and delay deals for Indian businesses and freelancers working with foreign clients. The challenge lies not with earning globally, but with understanding how the money moves across borders. 

This guide provides a detailed explanation of the foreign remittance limit in India. Read on to recognize how these rules apply to businesses and how Tax Collected at Source (TCS) functions. 

What is Foreign Remittance Under Indian Law

Foreign remittance refers to the process of transferring money between India and another country. It can be either money entering India or leaving the country.

The Foreign Exchange Management Act (FEMA) governs the flow of cross-border funds in India. It establishes the rules for sending, receiving, and reporting foreign currency in accordance with the guidelines set by the Reserve Bank of India (RBI). 

There are two types of remittances:

What is the Foreign Remittance Limit in India

If you’re a freelancer or someone who receives money from international clients regularly, it’s important to understand how foreign remittance limits work. This would help you stay compliant. The limit of foreign remittance from India is governed by the Liberalised Remittance Scheme (LRS).

LRS Limit for Outward Remittances

The RBI limit for foreign outward remittances for resident individuals in India is USD 250,000 per financial year per individual as per the LRS. This covers the following expenses:

Note: This limit applies only to individuals, not businesses.

Reporting Thresholds under FEMA

Banks closely monitor transactions within the permissible limit. Here’s what you need to do when you send a large amount abroad:

For instance, if you’re sending INR 40 lakhs to INR 50 lakhs at a time, the transaction may involve additional scrutiny by the bank.

Business vs Personal Remittance Limits

While understanding foreign remittance limits, it may be confusing to understand the thresholds for businesses and individuals. 

As a business, you can send money abroad for the following purposes:

These transactions come under current account transactions and follow trade settlement norms under FEMA, not LRS. Therefore, no cap is imposed on them like individual remittances. However, these must be supported by proper documentation for compliance checks. 

This comparison table will help you gain a clearer understanding.

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Is There a Limit on Receiving Foreign Remittances for Indian Businesses

There is no upper limit on receiving foreign remittances for legitimate business transactions. However, all inflows must comply with FEMA rules and are subject to reporting and checks by authorised dealer banks. As the value of the transaction increases, documentation becomes more critical

Have a look at the rules for exporters and freelancers separately to understand how this actually works.

Inward Remittance Rules for Exporters

For goods or services, exporters can receive unlimited payments. However, it’s important for them to:

For instance, a company exports goods worth $100,000. As long as proper documents are in place, it can receive the full amount without any restriction. However, compliance issues may stem from delays in receiving payments beyond the allowed period.

Inward Remittance Rules for Freelancers

As per FEMA, freelancers are considered exporters of services. They are entitled to receive payments directly into their bank account through international transfer systems and payment platforms. However, freelancers must maintain proper invoices, contracts, or agreements with clients, and proof of services provided.

Let’s say a developer in India is working remotely with a client based in the US. The person can receive monthly payments without any upper limit. But, it’s also necessary to maintain proper records of the work through agreements, invoices, and the product offered.

Purpose Code Requirements for Service Exports

A purpose code is needed for every foreign remittance. RBI gets to know what the transaction is meant for from this code. Some of the common purpose codes are: 

In case you end up using the wrong code, banks may:

Skydo’s purpose code guide will help you find the one that suits your activities. 

What Taxes Apply to Foreign Remittances in India

The taxes on foreign remittances in India depend on whether you’re sending or receiving money.

TCS on Outward Remittances

When you send money abroad, the tax that applies is known as the Tax Collected at Source (TCS). Here’s the current structure of TCS:

For example, if a person sends ₹12 lakh abroad for investment, the TCS is applicable only on the portion exceeding ₹10 lakh in a financial year under LRS. It is important to note that TCS is not an additional tax. It is an advance tax that you can claim as a credit while filing the income tax return. This applies only to outward remittances.

Handling compliance and taxes is only one part of international payments. However, the key challenge lies in receiving your money without delays. If you’re receiving money from foreign clients, it’s wise to use a platform like Skydo to simplify the transactions.

Income Tax on Inward Remittances

When you receive money from abroad, it is not taxed at the time of receipt. However, your income is taxable as per your tax slab.

For example, if you receive $5,000 from a client, that amount becomes part of your taxable income. However, gift rules also apply. If you receive a gift from a non-relative that exceeds ₹50,000, it may be subjected to tax. Proper FIRC documentation also helps to prove the nature of your income.

GST Implications for Service Exporters

No GST is charged on the export of services as it is considered zero-rated.

This means:

However, exporters either need to file a Letter of Undertaking (LUT) to export services without paying IGST, or pay IGST while exporting and later claim a refund. Compliance is necessary in both cases through proper GST filings. Documents like FIRC are essential to claim the refunds.

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How to Avoid 20% TCS on Foreign Remittance

There is no legal way to completely avoid the 20% TCS on foreign remittance. However, you can manage it if you stay within the thresholds, use the correct purpose codes, and claim it as a tax credit when you file your returns.

Stay Below the Annual Threshold of ₹10 Lakh

TCS applies only when you cross the annual threshold of ₹10 lakh. It is important to track total outward remittances across all purposes during the financial year. If possible, plan your remittances in such a way that the annual transfers remain within this limit. You may also time larger remittances across two financial years, if this option seems viable.

Provide Form 15CA and 15CB

Form 15CA is required for most foreign remittances, while Form 15CB (CA certification) is required in specified cases, particularly when remittances are taxable and exceed prescribed thresholds. It’s essential to submit these forms properly for correct tax treatment.

Use Correct Purpose Codes

The purpose code varies based on the nature of your business. Incorrect classification may lead to higher tax deductions. Therefore, it is advisable to check with your chartered accountant or authorized dealer bank before you send large payments.

Claim TCS Refund while Filing ITR

TCS is not a final tax. It appears in your Form 26AS and can be claimed while filing returns. If your total income tax return is less than the TCS you pay, you can get a refund.

Are International Wire Transfers Taxed in India

Wire transfers are not taxed as transactions, but the underlying income may be taxable, and outward remittances may attract TCS under applicable rules. However, the purpose behind the transaction matters. This means:

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What Documentation is Required for Foreign Remittance

It’s the documentation process where most of the delays take place. Keep these documents handy to prevent delays:

FIRC and BIRC Certificates

FIRC stands for Foreign Inward Remittance Certificate. It proves that you have received money from abroad. This document is necessary for:

A Bank Inward Remittance Certificate (BIRC) is somewhat similar, but often, the terms are used interchangeably.

For instance, if you want to claim GST input credit, you would need FIRC as proof of export payment. Many banks charge ₹500 to ₹1,500 per FIRC. Moreover, they may take some time to issue it.

Form A2 for Outward Remittances

As per LRS, Form A2 has to be filled out when you send money abroad. Before remittances, it has to be submitted to the AD bank. The document states:

Banks are not likely to process an outward remittance without this form.

KYC and Compliance Documents

Some of the common documents needed for KYC and compliance purposes include:

Incomplete documents often lead to payment delays. With digital platforms, this process gets simplified. 

How Indian Exporters and Freelancers can Receive Foreign Payments with Zero Hassle

Most problems in foreign remittance are about the process, not the limits. Some of the common challenges include:

For instance, a freelancer may receive $1,000, but receive a smaller amount due to hidden charges and poor conversion rates. This is where modern payment platforms like Skydo can help. The prime benefits businesses and individuals using this platform enjoy include:

The best part is that you can set it up quickly, and it’s much easier to manage payments compared to traditional banking processes. 

Start receiving international payments with Skydo!